INTERNATIONAL. Wholesale market gold prices rose to US$1,660 an ounce Wednesday morning London time – more or less where they ended last week – before easing ahead of US markets open, while stock, commodity and government bond prices held broadly steady following news that the UK government deficit rose sharply last year.

Silver prices meantime dipped below $32 per ounce around lunchtime – a 1.8% drop on the week so far.

"Silver is in a short-term downtrend and is likely to breach support...at US$31.81," says the latest technical analysis note from bullion bank Scotia Mocatta, who add that the next target would be US$30.48.

Over in India, the strike by Gold Dealers in protest at last week's gold import duty hike entered its fifth day Wednesday.

"Upside drivers are lacking and physical markets have yet to show a convincing response to lower prices."

Here in the UK, the latest Bank of England Monetary Policy Committee minutes published on Wednesday show that two of the nine MPC members voted in favor of expanding the Bank's quantitative easing program by £25 billion when the MPC met earlier this month. The majority voted to maintain the size of the program at £325 billion.

The decision to leave interest rates at 0.5%, where they have been since March 2009, was unanimous.

The MPC minutes noted significant risks to economic activity that might result in inflation falling materially below the [MPC's 2%] target in the medium term".

MPC member Spencer Dale however, who voted to six times for a rate increase in 2011 – said in a speech Tuesday that in his view "inflation is just as likely to be above as below the inflation target in the medium term".

The UK government deficit meantime rose to £12.9 billion last month – more than double consensus estimates – figures published hours before Wednesday's Budget show.

Lower tax receipts contributed to the deficit growth, the Financial Times reports, with HM Revenue & Customs data showing an 8% fall in self-assessment tax revenues compared to February last year.

The news "provides a very uncomfortable background for the budget," says Investec economist Philip Shaw.

"The fact there has been a worsening on this scale is a big surprise."

Britain is expected to issue the second largest amount of government debt – known as gilts – on record this coming fiscal year, according to a Bloomberg survey of primary bond dealers.

"The government has a tough balancing act," says John Wraith, London-based fixed-income strategist at Bank of America Merrill Lynch.

"Growth is going to be at best anemic, and it's going to take a long time to reduce gilt issuance. They need to reduce debt, but if they stick rigidly to their fiscal consolidation plan, they risk killing growth."

The FT argued this week that UK policymakers are engaged in financial repression, holding interest rates below inflation and creating a captive market for government bonds in an effort to lower the real value of national debt.

Federal Reserve chairman Ben Bernanke will warn of the US financial system's exposure to Europe when he appears before the House Oversight Committee today.

"US financial firms and money market funds have had time to adjust their exposures and hedge their risks to some degree as the European situation has evolved, but the risks of contagion remain a concern for both these institutions and their supervisors and regulators," Bernanke will say, in prepared remarks published ahead of the testimony.

On Tuesday, Bernanke gave the first in a series of four college lectures on the Fed's role in the economy, in which he described a gold standard as a "waste of resources" and a "far from perfect monetary system".

"Since the gold standard determines the money supply, there is not much scope for the central bank to use monetary policy to stabilize the economy...Under a gold standard, typically the money supply goes up and interest rates go down in a period of strong economic activity—so that's the reverse of what a central bank would normally do today."

Congressman Ron Paul last year asked Bernanke if he though gold was money, to which the Fed chairman replied 'No'. Last month, Paul held up a silver coin while questioning Bernanke, saying that it "is what the market has always said should be money".

Russia's central bank gold holdings 3.1 tonnes of gold last month, equivalent to 0.35% of its official reserves, data published Tuesday show.

Over in the US meantime, holdings in the world's largest gold ETF, the SPDR Gold Trust (GLD), fell 3 tonnes to 1290.2 tonnes yesterday, having held steady for one week. Silver bullion holdings in the iShares Silver Trust (SLV), the world's biggest silver ETF, remained steady at 9752.7 tonnes.

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

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